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4Q 2020 Market and Economic Overview

As the story goes, a boy guarding over sheep jokingly cries wolf, twice. After returning to the village twice, the locals decide not to respond when the boy cries again. Little did the villagers know that this time the wolf was attacking the sheep. Similarly, the global paradigm of recent decades with its repeated warnings of inflation has consistently reinforced disinflation. Now, as trust in public institutions continues to erode, populist policies could serve as the bedrock of a new inflationary paradigm. We suspect the monetary developments of 2020, coupled with the recent paradigm shift, could push inflation rates significantly higher. Policymakers and investors at large are reluctant to acknowledge this possibility. Decades of the deflationary paradigm have rendered them wholly skeptical of a potential wolf attack: spiking inflation.

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